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Related Topics

Related Discussions

The IASB and FASB considered (1) the definition of a lease and related application guidance (2) staff recommendations and outreach feedback regarding the identification of lease payments that are in-substance fixed lease payments but are structured as variable payments in form (e.g., disguised minimum lease payments).

As part of its continual deliberations surrounding the Exposure Draft Leases (Leases ED), the Boards deliberated on the following topics:

Defining a lease

Accounting for variable lease payments.

Summary

The Boards made a number of tentative decisions in the conduct of these deliberations, as summarised below:

Defining a lease

A 'specified asset', as defined in the Leases ED, should be defined as an identifiable asset as opposed to an asset of a certain specificity

Physically distinct portions of a larger asset can be specified assets and non-physically distinct portions are not specified assets

The description of 'control', as defined in the Leases ED, should be revised to be consistent with the revenue recognition project while including guidance on separable assets.

Accounting for variable lease payments

Recognition of obligations or benefits from a contract containing variable lease payments should be limited to the prescribed fixed portion of the contract.

Defining a lease

Following discussion at a joint meeting of the Boards on 17 February 2011 in which the definition of a lease and the application guidance in the Leases ED relating to that definition were discussed, the staff presented feedback received from targeted outreach in relation to previous decisions of the Boards.

Specific discussion points of this targeted outreach considered (1) whether the definition of a lease should refer to a specific or specified asset, or to an asset of a particular specification, (2) whether both a physically distinct portion (e.g., a floor of a building) and a non-physically distinct portion (e.g., capacity portion of a pipeline) of a larger asset can be the subject of a lease and (3) when does a customer have the right to control the use of a specified asset, among other areas.

Specified asset

Feedback from outreach activities noted that participants generally did not support the widening of the definition of 'specified asset' (beyond that of a uniquely identified asset), with many participants agreeing that the right to substitute an asset is an important aspect of assessment. If a supplier has the substantive right to substitute an asset, a customer, in the view of many respondents, would not control the use of that asset.

Several Board members raised concerns that application of the term, 'specified asset,' as used in the ED to defined leases, to one particular asset, without consideration of substitutability to an asset of consistent specification, would be too specific and would ignore the broad principle of including assets of a particular specification in the definition of a lease given the financing nature of underlying arrangements. Other Board members noted that if a customer recognised a right to use an asset, as discussed in the Leases ED, the asset should be identifiable, and similarly, if a supplier derecognises a right to use an asset, the asset being derecognised needs to be identifiable. As a result, it was considered that the concept of substitutability, as applied in any final standard, should consider the existence of substitutability rights of a supplier, whereby a supplier's ability to substitute assets under an arrangement as a result of practicality and economic feasibility, without requiring the customer's consent, would not result in lease accounting treatment according to the specified asset criterion alone. As a result, the Boards tentatively decided that a 'specified asset,' as defined in the Leases ED, should be defined as an identifiable asset as opposed to an asset of a certain specification. A "specified asset" would be an identifiable asset that is explicitly or implicitly identified in the contract. An asset would be implicitly identified if it would not be practical and economically feasible for the owner to substitute alternative assets in place of the underlying asset during the lease term.

Portions of a larger asset

Regarding contracts which represent a portion of a larger asset, the staff provided a recommendation that a physically-distinct portion of a larger asset (e.g., a floor of a building) can be a specified asset, but a capacity portion of a larger asset that is not physically-distinct (e.g., access to a portion of the capacity of a pipeline) cannot. Several Board members noted the significance of the control concept (e.g., access control) in the determination of whether a portion of a larger asset is representative of a lease, but the Boards tentatively concurred with the staff's recommendation.

Right to control

The Boards discussed two alternative views:

whether the control concept applied within the definition of a lease should be considered with the forthcoming revenue recognition standard, whereby a customer has the right to control the use of a specified asset if it has the ability to direct the use, and receive benefits from use, of that asset (Approach A)

whether the control concept proposed in the Leases ED should be retained in which the right to control the use of a specified asset is conveyed if the customer has the ability to direct the use, receive the benefits from use and pays for the right to use the asset, rather than paying a per unit price for the output (Approach B).

The majority of the members of the Boards supported Approach A as a result of considerations to (1) consistency in standard setting, (2) concern that Approach B creates structural opportunities in pricing and (3) the significance of the control principles applied in the revenue recognition proposal as would be applied consistently in the Leases ED. Respective members of the Board discussed the necessity of appropriate draft wording in any final standard issuance to consider all available evidence in the determination as to whether a customer has the ability to direct the use and receive the benefits from use of a specified asset, including control of physical access, involvement in the design of the specified asset and rights to obtain substantially all of the economic benefits.

In circumstances in which the supplier directs the use of the asset used to perform services requested by the customer (similar to the 'separate performance obligations' concept in the revenue recognition project), under the proposal in Approach A, the customers and suppliers would be required to assess whether the use of the asset is an inseparable part of the services requested by the customer (if inseparable, the entire contract would be accounted for as a service contract because the customer has not obtained the right to control the use of the asset) or a separable part of the services provided. Those supporting the concept of separating components in the definition of a lease cited that if an asset is separable from other services provided in a contract, the contract contains at least two separate components; the right to use an asset at the date of commencement of the contract and the other services over the term of the contract, and consequently, recognition principles should be applied accordingly.

Certain members of the Boards expressed concerns regarding the separable decisions outlined above, noting concerns with the identification of appropriate indicators to determine separable components and the potential impact of a large number of service contracts arising out of incidental services which are not determined to be separable. Examples raised by members of the Boards included a copier which includes a service contract, in which separation of elements is not able to be established, or the accounting for time charters. The staff were asked to re-consider draft verbiage provided in any final standard around the "separability" concept, including distinction of unique application environments such as common-area maintenance in the real estate sector.

Ultimately, the majority of the Boards tentatively decided that the description of 'control,' as defined in the Leases ED, should be revised to be consistent with the revenue recognition project while including guidance on separable assets, whereby a contract would convey the right to control the use of the underlying asset if the customer has the ability to direct the use, and receive the benefit from use, of a specified asset throughout the lease term.

Accounting for variable lease payments

The Boards were presented with staff recommendations and outreach feedback regarding the identification of lease payments that are in-substance fixed lease payments but are structured as variable payments in form (e.g., disguised minimum lease payments), following the Boards' tentative decision in February 2011 to require that the lessee's liability and the lessor's receivable include an estimate of disguised minimum lease payments.

recognise no underlying aspect of variable lease payment contracts in the financial statements but disclose the underlying nature of such contracts

recognise only the fixed portion of such contracts (e.g., the disguised fixed payments underlying a variable lease payment contract, such as a lease contract which prescribes a floor with potential increasing variability would result in recognition of the fixed floor to the contract), with associated disclosure of variability, or

recognise a "reasonably assured" estimate of the associated obligation or benefit (e.g., for a contract which requires lessee payment to a lessor based on sales, a review of historic sales that can be projected for the foreseeable future should be used to assess the obligation).

Board members discussed:

Consistency in recognition of estimates amongst this proposed standard and that of current projects surrounding insurance, impairment and revenue recognition

Concerns regarding determination of a minimum lease amount in contracts which are completely comprised of variable lease payments, where a lack of substantive support exists for estimating prospective payments

Concerns regarding the recognition of underlying lease assets or liabilities which extend beyond the foreseeable future of a company's projections lending to significant variability in the balance sheet each year

Consideration of a recognition model which reflects only unavoidable amounts.

As a result of this assessment, the majority of the Boards tentatively decided that the asset and liability recognised under a lease contract should exclude variable lease payments except for those that are considered disguised minimum lease payments.

Disguised minimum lease payments are those payments in a lease contract that are structured such that the variable payments are in-substance fixed. Many Board members acknowledged that the exclusion of variable lease payments (except disguised minimum lease payments) is a practical expedient because contingent rentals represent an unconditional obligation at lease commencement. These Board members noted the practical concerns with recognition of a 'reasonably assured' estimate of potential variable cash flows.

This tentative decision reverses the Boards' previous tentative decision that included a high threshold for all variable payments. The Boards asked the staff to consider any practical guidance available from accounting firms in the identification of disguised fixed minimum lease payments for purposes of practical guidance to provide in any final standard issuance.

The IASB and FASB discussed how an entity should determine the transaction price and recognise revenue when the customer promises an amount of consideration that is uncertain.

Uncertain consideration

The Boards discussion focused how an entity should determine the transaction price and recognise revenue when the customer promises an amount of consideration that is uncertain. The answer depends on various issues such as the nature of an entity's contractual rights and obligations, and an entity's ability to estimate the outcome of uncertain future events.

The Boards had previously discussed these issues at length in March 2011 and had not made any decisions due to the lack of clarity on the interaction of the various aspects of the revenue model. The staff presented three steps to apply the proposed revenue model. The staff clarified that the pattern of revenue recognition should be included as a measurement issue rather than a recognition issue to be consistent with the tentative decisions reached in the leases project.

a)

Step 1: Determine the transaction price. The staff recommended that the entity needs to determine the transaction price for two reasons: 1) it is the amount allocated to separate performance obligations, and 2) it is an input to the onerous test. The transaction price is the total amount of consideration that the entity expects to receive/realize for the whole contract. The staff recommended that an entity would determine the transaction price at the amount more likely than not to be received, unless the entity has a large number of contracts with similar characteristics in which case the entity would determine the transaction price at the expected value (i.e. the probability- weighted amount). The staffs' recommendation generated significant discussion by the boards on the different measurement methods (best estimate, more likely than not, expected value, median, mode) and potential issues with the staffs' recommendations.

a.

The staff clarified that the transaction price mentioned here does not relate to collectability

b.

The Boards tentatively decided that in the first instance, an entity should use an expected value technique. If this is not appropriate, the entity should use a mode technique or mean technique and subsequently the best estimate if neither of these techniques work. The Boards asked the staff to revise the wording on the techniques used to determine transaction price.

b)

Step 2: Allocate the transaction price. The staff recommended that an entity should allocate to each separate obligation the amount of consideration the entity expects to receive in exchange for satisfying that performance obligation. This is discussed in the following section. The Boards agreed in principle to this allocation for the purposes of determining Step 3.

b)

Step 3: Recognise revenue (if the amount allocated to a satisfied performance obligation is reasonably assured to be received). The staff recommended changing the term from reasonably estimated to reasonably assured on the basis that in some circumstances an entity might be able to reasonably estimate an amount even though the entity is not reasonably assured to receive that amount in accordance with the guidance in the revenue standard. The Boards tentatively agreed with this change in term.

i.

The staff recommended that when an entity satisfies a performance obligation, the entity should recognise revenue at the amount allocated to that performance obligation unless the amount is not "reasonably assured" to be received, which would be the case in each of the following circumstances below.

1.

The customer could avoid paying an additional amount of consideration without breaching the contract (e.g. a sales based royalty)

2.

The entity has no experience with similar types of contracts (or other persuasive experience)

3.

The entity has experience, but that experience is not predictive of the outcome of the contract based on an evaluation of various factors (e.g. time until the uncertainty is resolved, susceptibility to factors outside the influence of the entity e.g. volatility in the market, judgment of third parties, and risk of obsolescence of the promised good or service, the extent of the entity's experience, the number and variability of possible consideration amounts).

Most respondents supported a constraint on revenue recognition but the staffs' recommendations generated significant discussion by the Boards on the ways in which to constrain revenue and there were many concerns raised and viewed shared by the Boards. Some of those concerns included inconsistencies with tentative decisions reached in the lease project for lessor accounting, and inconsistency in practice for applying the principles being discussed as well as the situations where amounts would be recognised in determining the overall transaction price but not recognised due to constraints on revenue resulting in potential contingent assets/liabilities. The staff clarified that if there is significant uncertainty, this third revenue constraint would minimise truing up revenue in the future. The staff noted that this would need to be disclosed in the financial statements but that this would be addressed at a future meeting. The Boards tentatively agreed to Step 3 point 1 and 2 and in principle with point 3 but asked the staff to build up point 3 further and to add wording around whether the circumstances are within an entity's control. The Boards also asked the staff to ensure that the revenue recognition principles were consistent with principles of lessor accounting.

The IASB and FASB considered (1) the current status of the insurance project (2) 'top-down' approaches to determining the discount rate.

Taking stock (Paper 5/63)

The staff presented a brief paper to the Boards summarising the current status of the insurance project and the decisions taken to date. There was no significant discussion on the paper, and the most important issue arising is that June 2011 is now officially a 'working month' which will lead to the final ballot vote on the IFRS and resulting in its likely publication in July 2011.

Top down approaches to discount rates (Paper 5A/63A)

The staff presented a paper to the Boards addressing the application of the Boards' tentative decision on 17 February to permit both top-down and bottom-up approaches to determining the discount rate, with a focus on non-participating contracts.

The staff recommended that the Boards include application guidance in the final standard that:

The top-down discount rate is not an asset rate, but should be determined to reflect the characteristics of the insurance contract liability

An appropriate yield curve should be determined based on current market information. The yield curve can reflect the actual assets that the insurer holds, or be based on a reference (not replicating) portfolio which is determined to reflect the characteristics of the liability

Where there are no observable market prices for points on the yield curve, the insurer should use an estimate consistent with the Boards' guidance on estimates — particularly the guidance on Level 3 financial instrument fair value guidance.

The staff confirmed that the IFRS will state that asset cash flows utilised for a top down discount rate valuation should be adjusted to reflect the characteristics cash flows of the liability. In particular, they should be adjusted for:

Differences between the timing of the cash flows in the reference asset portfolio (or the insurer's own assets) and those of the liability to reflect the actual degree the durations match

Risks inherent to the assets but which do not relate to the liability.

The staff also recommended that, as insurers using a top-down approach to determining the discount rate are likely to have found it impractical to apply a bottom-up approach, no further adjustments (e.g. liquidity / illiquidity) should be adjusted for.

The Boards' members asked a number of questions of the staff, largely focused on clarifying their understanding of the issues involved. A member suggested the use of a practical expedient for this process for non-insurance companies, but this did not receive significant support. The staff also clarified that the top-down discount rate is not an asset-based discount rate. It remains the discount rate reflective of the characteristics of the liability (in the same way that a bottom-up rate is not a risk-free discount rate) which has simply been determined on a different basis.

Overall the Boards' members supported the staff analysis and the conclusions they had reached without dissention. The staff should now finalise the analysis and prepare final wording for the standard on the valuation of discount rates for non participating insurance contracts.

The IASB and FASB discussed (1) the types and classification of leases (2) initial and subsequent measurement and presentation of both lessee and lessor accounting.

As part of its continual deliberations surrounding the Leases ED, the Boards deliberated on the following topics:

Types and classification of leases

Initial and subsequent measurement and presentation of lessee accounting

Initial and subsequent measurement and presentation of lessor accounting

Summary

The Boards made a number of tentative decisions in the conduct of these deliberations, as summarised below:

Types of leases and distinguishing lease types

Two types (classifications) of lessee accounting models exist, excluding distinction of short-term leases or normal purchase transactions, and the distinction amongst the lessee models should be defined consistently with current guidance in paragraphs 7-12 of IAS 17Leases

Two types (classifications) of lessor accounting models exist, excluding distinction of short-term leases or normal sale transactions, and the distinction amongst the lessor models should be defined consistently with current guidance in paragraphs 7-12 of IAS 17 Leases.

Lessee accounting model, other-than-finance leases

For other-other-finance leases, both the liability to make lease payments and the right-of-use asset would be initially measured at the present value of lease payments. The liability to make lease payments should be measured using the effective interest method and amortisation of the right-of-use asset should be based on the difference between the straight-line amount and the interest expense amount

Recorded expenses should be presented in a single-line item by lessees as operating (rent) expense within profit or loss for all other-than-finance leases.

Lessee accounting model, finance leases

For finance leases, a lessee should apply the lessee model proposed in the Leases ED to its finance leases, whereby both the liability to make lease payments and the right-of-use asset should be initially measured at the present value of lease payments. The liability to make lease payments should be measured using the effective interest method and the right-of-use asset should be measured using a systematic and rational amortisation/depreciation method

The interest and amortisation/depreciation expense amounts should be presented separately within profit or loss on an accelerated basis.

Lessor accounting model, other-than-finance leases

For other than finance leases (referred to as the performance obligation approach within the Leases ED), the lessor should not recognise the lease receivable and lease contract liability on a gross basis. The Boards could not concur as to whether the lease receivable and lease contract liability should be presented on a net basis or whether the lessor should follow current operating lease accounting treatment (no receivable and liability would be recognised).

Types and classification of leases

In a February 2011 joint meeting of the Boards, the Boards introduced two different types of leases (absent short-term leases), which were referred to as finance and other-than-finance leases (although the naming convention of such lease types will be considered further in a future meeting). Targeted outreach on this distinction revealed that most respondents were supportive of having two types of leases, but noted certain disadvantages of a two-type model, including added complexity.

Considering this feedback, the staff presented a draft definition to be used in distinguishing finance and other-than-finance leases, as well as supporting indicators in distinguishing between the two; noting, generally, that the assessment should be based on the business purpose of the contract and a review of indicators including the lessor business model, residual asset, potential ownership transfer, length of lease term, underlying asset, variable rent, rent characteristics (e.g., benchmarking of rent payments) and embedded or integral services.

Several Board members expressed concern that the assessment of two unique lease types added too much complexity to an environment in which the underlying purpose of leasing, from a lessee perspective, is generally financing, and therefore, proposed that only one type of lease be recognised for lessee modelling. Likewise, Board members were concerned with creating new bright-lines for structuring purposes and developing appropriate conceptual arguments to support different classifications of leases.

Several Board members, however, noted unique classifications of leases would provide results which are more consistent with current business models and would allow for differentiating the profit and loss recognition pattern to the underlying economics of the lease transactions and relevant levels of asset risk and reward; both under a lessor and lessee accounting model.

As a result, the Boards tentatively decided that two types (classifications) of lessee and lessor accounting models exist; a finance and other-than-finance lease (although naming convention will be re-evaluated in a future meeting).

In distinguishing whether a lease should be accounted for as a finance lease or an other-than-finance lease, the Boards considered classification criteria, including a determination based on the business purpose for the lease transaction and the transfer of substantially all of the risks and rewards of ownership, but several Board members expressed concern as to the operationality of such a determination. The majority of the Boards discussed a preference to base distinction in classification according to the transfer of substantially all of the risks and rewards of ownership, and noted a preference to continue application of the IFRS guidance as outlined in IAS 17, paragraphs 7 - 12. One Board member expressed concern that any final standard, in application of IAS 17's classification criteria, should also include outreach assessment around items external to current IAS 17 indicators, including bundled services and variable rent.

The Boards tentatively decided that the determination of whether a lease is a finance or other-than-finance lease should be based on the existing indicators in paragraphs 7-12 of IAS 17.

Lessee accounting

The Boards analysed approaches for the initial and subsequent measurement and presentation of both other-than-finance and finance leases in the financial statements of a lessee.

Other-than-finance leases

The Boards deliberated on multiple approaches regarding how a lessee should initially and subsequently measure and present an other-than-finance lease. A minority of Board members supported a right of use asset that would be amortised on a straight-line basis through other comprehensive income (OCI). These members highlighted that application of an OCI presentation would serve to specifically highlight the nature of such modelling application to users of the financial statements, while providing comparability for all lease transactions within the income statement and statement of financial position, but the majority of the Boards expressed concern with presentation within OCI given that the purpose of OCI has not been clearly defined and is often criticised as being a placeholder to reflect items that would otherwise cause unwanted volatility in earnings.

Another minority of Board members preferred application of a right of use asset and liability to make lease payments that were linked at inception of the lease and amortised independently of the measurement of the liability for lease payments, believing it better reflected the consumption of benefits over the lease term and the time value of money. A majority of the Boards rejected this approach based on the application of an effective annuity depreciation over the term of the lease which was inconsistent with current guidance.

After exploring these possibilities, the Boards considered approaches which reflect the utilisation of benefits by allocating costs of an asset over its useful life in a way that reflects both the consumption of economic benefits and the time value of money, while also reflecting lease payments in a manner consistent with underlying IAS 17 guidance. One member suggested that for other-other-finance leases, both the liability to make lease payments and the right-of-use asset should be initially measured at the present value of lease payments. The liability to make lease payments should be measured using the effective interest method and amortisation of the right-of-use asset should be based on the difference between the straight-line amount and the interest expense amount. The Boards tentatively decided to apply the above model.

The Boards also tentatively decided that recorded expenses under the above model should be presented in a single-line item (as opposed to reflection of amortisation and interest expense as separate line items) by lessees as operating (rent) expense within profit or loss for all other-than-finance leases. This conclusion was reached given the principles underlying an other-than-finance lease.

Finance leases

The staff recommended that the Boards confirm the proposals in the Leases ED for the initial and subsequent measurement of assets and liabilities arising for a lessee in a finance lease, as summarised above.

The staff presented, given feedback received in outreach activities, an effective interest and a fair value method for subsequent measurement of the liability to make lease payments under finance leases. The Boards, considering that an effective interest method is consistent with the principle of a finance lease and conceptually consistent with other borrowing or financing activities that a lessee would enter into, noted that interest expense would represent useful information about the financing component of a finance lease. Board members noted that a fair value approach would be costly and inconsistent with the initial measurement of the liability to make lease payments and the subsequent measurement of many other non-derivative financial liabilities. Thus, the Boards tentatively agreed that the final standard require the lessees in a finance lease to measure the liability to make lease payments at the present value of lease payments, while the subsequent measurement of a liability to make lease payments should be measured using the effective interest method.

The Boards also considered the measurement of the right-of-use asset on a systematic basis in accordance with IAS 38 Intangible Assets, as compared to a straight-line expense for the lessee. Board members noted that the former was consistent with the amortisation of a lessee's owned assets and other non-financial assets and is also consistent with the initial measurement of the right-of-use asset at cost. Thus, the Boards tentatively decided that the right-of-use asset should be initially measured at the present value of lease payments, with subsequent measurement using a systematic and rational amortisation/depreciation method.

Lessor accounting

The Boards discussed approaches for the initial and subsequent measurement and presentation of both other-than-finance and finance leases in the financial statements of a lessor.

Other-than-finance leases

Board members discussed presentational requirements in an other-than-finance lease. While the Boards were unable to reach a tentative decision as to whether the lease receivable and lease contract liability should be presented on a net basis or whether the lessor should follow current operating lease accounting treatment (no receivable and liability would be recognised), the Boards tentatively decided that lease receivables and lease contract liabilities should not be presented on a gross basis, as originally presented in the Leases ED, given that it results in double counting of the lessor's assets and the carrying amount of the lessor's receivables and the underlying assets are supported by the same set of cash flows. Consequently, if the underlying asset were viewed in isolation, it could be argued to be impaired.

The Boards will discuss this issue in a future meeting, as no further decisions were reached regarding the above topic or the underlying presentation and measurement of other-than-finance leases in lessor accounting.

Finance leases

For finance leases (previously referred to as the derecognition approach in the Leases ED), the Boards discussed the initial and subsequent measurement of assets and liabilities recognised by a lessor for finance leases. The staff explained that a lessor could account for the underlying asset for finance leases in two ways; by derecognising the entire carrying amount of the underlying asset or derecognising only a portion of the carrying amount of the underlying asset (e.g., the right-of-use portion that was transferred to the lessee).

Several members of the Boards immediately rejected a 'full' derecognition approach to lessor accounting (e.g., derecognising the entire underlying asset) because of concerns that the lessor would recognise a gain / profit on initial recognition of the lease contract equal to the difference between the carrying amount of the underlying asset and its fair value even when only a portion of the underlying asset has been transferred (does not faithfully depict the transfer of benefits to the lessee). Opposing views noted that all material risks and rewards should be transferred in a finance lease, so would the residual portion of the underlying asset that has not been transferred be material.

Other Board members cited the complexity of a partial derecognition approach, while also citing outreach responses which suggested that a partial derecognition approach (1) did not provide users with useful information on the level of residual asset risk and (2) the residual asset should not be considered an item of property, plant and equipment given that it is not an asset that the lessor uses or intends to use in its business.

The Boards will discuss this issue in a future meeting, as no tentative decisions were reached regarding the above topic or the underlying presentation and measurement of finance leases in lessor accounting. Such discussion is expected to consider measurement of the lessor's lease receivables, including receivable securitisation environments which may suggest a fair value measurement of lease receivables, while also considering the measurement of residual assets.

The IASB and FASB considered (1) the allocation of the transaction price to separate performance obligations (2) whether the revenue standards should distinguish between different types of licences and rights to use intangible assets (3) accounting for fulfilment costs.

Allocating the transaction price

The staff discussed that the underlying principle of the ED is that an entity should allocate to each separate performance obligation the amount of consideration the entity expects to receive in exchange for satisfying that performance obligation. The staff recommended that to apply this core principle, an entity should allocate the transaction price on a relative standalone selling price basis (using estimated selling prices if necessary) except in the following circumstances in which an entity should be permitted to use an alternative allocation method:

If an entity transfers a significant good or service to the customer at the beginning of a contract and the price for that good or service is highly variable (e.g. software license), the entity should be permitted to allocate the transaction price to the remaining performance obligations in a contract at an amount equal to the standalone selling prices of the goods or services underlying those remaining performance obligations (i.e. residual method)

If a relative selling price allocation results in a loss on one or more performance obligation, an entity should be permitted to allocate the transaction price to the performance obligations in a contract using either a residual method or by allocating the discount in the contract in proportion to the individual profit margin on each separate performance obligation (i.e. a profit margin method).

The staffs' recommendations with respect to the alternative methods generated significant discussion by the Boards and there were many concerns raised and views shared by the Boards. Some of the concerns centred on whether (a) was specifically tailored to the software industry and whether there was a difference between residual method and residual technique. Concerns around (b) centred on the ability to choose between two methods and that there was a lack of clarity around what costs were involved in determining the profit margin and situations where loss leaders would be able to use alternative methods to allocate revenue.

The Boards tentatively agreed to change the wording on (a) to note that the residual method would be appropriate technique where there is a variable performance obligation. This is not a choice but a technique to meet the core principle of the ED.

The staff clarified that exception (b) related to situations where there are normally profitable components on a contract which as a result of the allocation of a discount based on the relative selling price now has some loss making components which is not representative of the economics of the product/service. Several Board members noted that the exception (b) was not sufficiently clear or narrow enough. The Boards were spilt on agreeing to exception (b) and neither of the Boards agreed to a more narrow interpretation of exception (b). Consequently, the Boards tentatively agreed in principle to drop exception (b) and revert to an allocation based on relative selling price.

Allocating subsequent changes in the transaction price

The staff recommended that an entity should allocate changes in the transaction price on a relative standalone selling price basis to all performance obligations in the contract, except when a change in the transaction price relates entirely to one performance obligation. That would be the case if both of the following conditions are met:

The contingent payment terms of the contract relate specifically to the entity's efforts to satisfy that performance obligation or a specific outcome from satisfying that separate performance obligation; and

The amount allocated (including the change in the transaction price) to that particular performance obligation is reasonable relative to all of the performance obligations and payment terms (including other potential contingent payments) in the contract).

The Boards tentatively agreed with the staff's recommendation.

Licences and rights to use intangible assets

The Boards re-deliberated whether the revenue standard should distinguish between different types of licenses following feedback from respondents who mainly disagreed that entity should distinguish between an exclusive and a non-exclusive license as the majority of the respondents felt that exclusivity does not affect the nature of an entity's performance obligation, and therefore is counterintuitive to have different patterns of revenue recognition depending on whether a license is exclusive. The Boards tentatively agreed with the staff's recommendation that the revenue standard should not distinguish between the types of licenses. The Boards also clarified that licenses and rights to use intangible assets had been scoped out of the lease standard (in particular, from a vendor perspective).

The Boards considered two alternatives to accounting for a contract in which the entity grants a license to a customer. Under Alternative A, an entity would apply the overall revenue model when accounting for a contract in which the entity grants the customer rights to use the entity's intellectual property. As such, an entity satisfies its performance obligation (and therefore, recognises revenue), when the customer is able to use and benefit from the promised rights (i.e. when the customer obtains control). Under Alternative B, an entity satisfies its performance obligation and recognises revenue over the period in which the customer has the right to use to underlying assets. This alternative could significantly change current practice for accounting for various transactions. The Boards tentatively agreed with the staff's recommendation that in a contract in which an entity grants a license to a customer, the promised asset is the license and the promise to grant that license represents a single performance obligation that the entity satisfies when the customer is able to use and benefit from the license (i.e. Alternative A).

Fulfilment costs

The Boards had previously discussed the issues relating to the costs of obtaining a contract at the February 2011 meeting and tentatively decided that an entity should recognise an asset for the incremental costs of obtaining a contract that the entity expects to recover. Incremental costs of obtaining a contract are costs that the entity would not have incurred if the contract had not been obtained.

This meeting considered improvements to the proposed guidance in the ED on accounting for the costs incurred to fulfil a contract with a customer. Certain Board members expressed reservation that costs were addressed in the ED. However, some Board members noted that this guidance would provide more clarification, consistency, and improve convergence that it was not possible to develop a comprehensive revenue standard without addressing some cost guidance as was requested by respondents. The Boards tentatively agreed with the majority staff view and recommendation to retain the existing scope in the ED for the fulfilment cost guidance rather than addressing costs comprehensively.

The Boards tentatively affirmed the proposal in the ED that an entity should first apply the requirements of other standards (e.g. on inventory, PP&E, and intangibles) to account for the costs of fulfilling a contract. The Boards discussed and tentatively concurred that the definition of "standards" referred to official literature.

If an entity incurs costs to fulfil a contract and those costs are not in the scope of another standard, the entity should recognise an asset arising from fulfilment costs if all of the following conditions are met: a) the costs relate directly to a contract; b) the costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future, and c) the costs are expected to be recovered. Certain Board members felt that this definition was vague and the staff agreed to draft wording to make the criteria/definition of an asset clearer. The Boards tentatively agreed in principle to the staff's proposal. There was some discussion that this could lead to unintended consequences where some costs that were previously expensed would be capitalised.

The Boards tentatively concurred with the staff's clarification that "costs relating directly to a contract" include pre-contract fulfilment costs that relate directly to a specific anticipated contract. Specifically, the staff clarified that pre-contract costs are fulfilment costs that an entity incurs prior to obtaining a contract, such as the costs of mobilization, engineering and design, architectural or other fulfilment costs incurred on the basis of commitments or other indications of interest in negotiating a contract.

The Boards considered the staff's proposal to clarify what was meant by "abnormal costs". The Boards tentatively agreed to use the language in the ED asked the staff to add some clarity but not to over engineer the wording.

The Boards tentatively agreed to the staff's proposal to provide a few more examples of allocations of costs that relate directly to a contract but that these should be limited.

Some respondents had questioned how to apply the proposed revenue model to account for the effects of learning costs in a contract with a customer. The Board tentatively agreed and asked the staff to draft an illustrative example.

The IASB and FASB received a summary of the views received during outreach activities as well as an initial summary of the comment letters received on the joint supplementary document on impairment.

Summary of feedback from outreach meetings and comment letters

The comment period on the joint supplementary document (the "Supplement") closed on 1 April 2011. During the open comment period, the staff and several Board members held outreach meetings with various constituents around the world. During this meeting, the IASB and FASB received a summary of the views received during those outreach meetings as well as an initial summary of the comment letters received by the comment period closing date.

The FASB staff provided a summary of the outreach activities involving financial statement users since the Boards received few user responses through the comment letter process. Users include buy- and sell-side analysts, regulators and investor or analyst industry groups. They believe that the Boards finding a converged impairment model is highly important. They are also supportive of a move towards a single impairment model for all financial instruments. Additionally, users believe it is important that the final impairment model mitigates pro-cyclicality. Users' primary concern with the proposals in the Supplement is the lack of comparability associated with the 'higher of' test of the time-proportionate approach and the foreseeable future period approach, particularly in instances where the recognised allowance may flip from one approach to another from period to period. Users have concerns over the definition of foreseeable future period as they felt there would be a lack of comparability. Similarly, they also generally prefer a standardised market trigger for transfers from the 'good book' to the 'bad book' to increase comparability.

The IASB staff provided a summary of the comment letters received as of the comment period deadline. Respondents generally felt that the 60 day comment period was not sufficient to properly test the proposals and requested that the entire impairment model be separately proposed so that all components can be considered together. Respondents acknowledged that the foreseeable future period allowance would often be higher than the time proportionate allowance. Respondents from the US generally preferred using only the foreseeable future period allowance while international respondents generally preferred using only the time proportionate approach allowance; although there were diverging views in each of those jurisdictions. Many respondents offered alternative variations of the proposals in the Supplement. Respondents also expressed concern that the degree of judgment provided in the Supplement may be overridden by regulators such that while there exists convergence in the standard, the actual application could vary significantly across jurisdictions.

The Board held a discussion based on the summaries provided by the staffs. One IASB Board member noted the conflicting messages received by constituents, noting that a consistent theme was support for convergence but there was not overwhelming support for the converged proposal. Additionally, the Board developed a principles-based impairment model, but there is concern that regulators will override the principles in the standard and impose bright line applications. Another IASB Board member acknowledged the challenge the Boards will face to balance the feedback received from financial institutions and regulators who have very different perspectives. The Board made no decisions during this meeting.

The IASB and FASB considered the accounting for put options under sale and repurchase agreements, considering if and when such arrangements should be accounted for as a lease.

Sale and repurchase agreements — put options (paper 2E)

The Boards continued their deliberations on the revenue ED and made the following tentative decision as summarised below:

The Boards tentatively agreed with the recommendation that if a customer has the unconditional right to require the entity to repurchase the asset (a put option) and the repurchase price is below the original sales price and the customer obtains the control of the assets, the sale and repurchase agreement should be accounted for as a lease but asked the staff to revise the wording to add clarity by including references to a time factor and that there should be a significant economic incentive for the customer to return the asset.

Sale and repurchase agreements — put option

The ED currently provides that if a customer has the unconditional right to require the entity to repurchase the asset (a put option), the customer obtains the control of the asset, and the entity should account for the agreement similarly to the sale of the product with a right of return. The staff recommended that a sale and repurchase agreement with a put option and a repurchase price below the original sales price should be accounted for as a lease. When the repurchase price is at the original sales price, the staff recommended that the put option should be accounted for as a sale with a right of return.

This was in response to some of the respondents' comments that the repurchase price of a put option is not always at, or near to the original sales price and that in some industries, this arises because the put option is not exercisable until a reasonable period of time after the original sale and that in some instances, the repurchase price is lower than the original sales price, because the asset will not be returned in the same condition it was sold. Therefore the customer can be viewed as having a right to use the asset until the put option becomes exercisable, at which point the customer can choose to keep the asset or sell it back to the entity. Such instances would appear economically to be more like a lease than a right of return. The staff raised concerns that there might currently be an arbitrage between the lease standard and the revenue standard. Several Board members expressed concerns that the staffs' recommended wording did not explicitly cover a time factor or wear and tear factor or circumstances where the repurchase price was clearly below estimated market value which would indicate that there was a sale rather than a lease transaction. The Boards tentatively agreed with the recommendation in principle but asked the staff to revise the wording to add clarity by including references to a time factor and that there should be a significant economic incentive for the customer to return the asset. In such circumstances, the revenue standard would then require the entity to apply the leasing model in the lease standard. Certain Board members noted that this may give rise to situations in which the revenue standard would refer the entity to the lease standard even though the entity's products/services (such as intangible assets) are scoped out of the lease standard. In such circumstances, the revenue standard would take precedence and the entity would apply the leasing model in the lease standard.

Current IFRS and US GAAP define amortised cost in fundamentally different ways. US GAAP currently contains three separate definitions of amortised cost within various literature (FAS 114, FSP FAS 115-2 and SOP 03-3). The FASB's proposed ASU includes a single definition of amortised cost of:

"A cost based measure of a financial asset or financial liability that adjusts the initial cash inflow or outflow (or the noncash equivalent) for factors such as amortization or other allocations. Amortized cost is calculated as the initial cash outflow or cash inflow (or the noncash equivalent) of a financial asset or financial liability adjusted over time as follows:

Decreased by principal repayments

Increased or decreased by the cumulative accretion or amortization of any original issue discount or premium and cumulative amortization of any transaction fees or costs not recognized in net income in the period of acquisition or incurrence

Increased or decreased by foreign exchange adjustments

Decreased by write-offs of the principal amount."

IAS 39 currently defines amortised cost as "the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount and the maturity amount and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility."

The primary difference between these two approaches is that the approach under IFRS subtracts an allowance for credit losses in calculating amortised cost while US GAAP does not. The feedback both Boards have received is that financial statement users wanted an interest income recognition model that allows them to analyse net interest margin and credit losses separately. As a result, both Boards unanimously agreed that a reduction for a credit impairment allowance would not be included in the calculation of amortised cost for a financial asset.

Discounted vs. undiscounted expected losses

The joint Supplementary Document proposed that entities would be permitted to use either discounted or undiscounted expected losses in calculating the allowance amount under the time-proportional approach. However, the FASB did not participate in the discussions in developing the time-proportional approach so the Boards had not jointly discussed the issue of whether expected losses should be discounted or undiscounted. The staffs noted that the feedback received from comment letter respondents was that the Boards should either permit the use of undiscounted cash flows of expected credit losses due to operational concerns; or if consistency is desired then to require the use of undiscounted cash flows. The staffs also clarified that this discussion related to expected loss estimates of items in both the good book' and the bad book', expect for those items purchased directly into the bad book' which had been discussed separately at the previous joint meeting.

The Boards' discussions focused around the consideration of two alternatives. The first alternative would measure expected losses as principal only on an undiscounted basis which would require developing guidance for when to place loans on non-accrual' status. The second alternative would measure expected losses as all cash flow shortfalls (both principal and interest) on a discounted basis which would require determination of how to present the unwinding of the discount on the impairment allowance.

The Boards were fairly split on the issue. IASB members generally agreed conceptually that amortised cost is a discounted cash flow measure. FASB members generally had concerns over the operationality of discounting expected credit losses. Additionally, one FASB member representing financial statement users felt it was important that loans in the bad book be placed on a non-accrual status as doing otherwise would distort the interest margin. The IASB members felt it was important that a principle be established based on the use of discounted cash flows and that methods to address operational concerns could be built in. The FASB members expressed concern with developing a requirement in the standard that people would have difficulty in applying in practice. The financial statement user representatives from both Boards agreed that not all financial statement users would have consistent views on the issue.

The Boards finally found some amount of common ground by tentatively deciding the objective of estimating expected credit losses would be a present value calculation; however, the Boards acknowledged that several statistical approaches may approximate that amount. One IASB member gave an example of utilising a loss rate that incorporates a present value component (using the example of a 5% expected loss rate to occur 5 years from today, an entity may use a loss rate of 3.5% or 4% which reflects the present value of those future cash flows that will not be received).

After deciding that the objective of estimating expected credit losses is a present value calculation approach, the Boards then began discussions on how to unwind (accrete) the associated discount. Under current IAS 39, because amortised cost is reduced for the allowance of incurred losses and interest revenue is calculated as the EIR times amortised cost, the discount is unwound through interest income. However, because the IASB has decided to decouple' the presentation of impairment losses from interest revenue and because the Boards decided earlier in this meeting that amortised cost would not be reduced for the allowance for credit losses, the Boards have to determine whether to present the unwinding of the discount through either interest revenue (either in separate line items or on a net basis) or through impairment losses.

The Boards considered three alternatives for unwinding the discount. The first alternative would present the unwinding in the impairment losses line item. The second alternative would present the unwinding as a separate line item below interest revenue to result in a net interest revenue amount. The third alternative would present the unwinding within interest revenue and disclose the components in the notes to the financial statements.

Similar to the discussion on discounting, the Boards generally had different views on the presentation. The FASB members all supported presented the unwinding in the impairment losses line item. The IASB members generally supported presenting the unwinding as a separate line item below interest revenue to result in a net interest revenue amount.

One FASB member expressed significant concerns over the operationality of either the second or third alternatives believing it would require creating closed portfolios for each year of originated loans. The FASB Chair also expressed concern that this decision was inconsistent with the decision just made on discounting as it would require performing a present value calculation rather than using another statistical method such as a loss rate. The IASB finally found enough support (9 votes) to agree with the FASB on presenting the unwinding in the impairment losses line item and providing some level of disclosure around unwinding.

The IASB considered whether equity investments at fair value through other comprehensive income could be eligible to be hedged items.

Eligibility of equity investments at fair value through other comprehensive income as hedged items

The hedge accounting exposure draft prohibited designating financial instruments carried at fair value through other comprehensive income (FVTOCI) as eligible hedged items because the risk exposure being managed did not impact profit or loss as the gains and losses recognised in OCI are never recycled to profit or loss. Several comment letter respondents raised this issue requesting the board to also permit these items as eligible hedged items. They asserted that while these equity investments may not impact profit or loss, they are often times hedged in a similar manner to other financial investments at fair value through profit and loss. In particular, they noted hedging these investments for foreign exchange risk and the hedging of equity price risk.

The Board considered whether to retain the prohibition in the exposure draft or to allow designation of equity investments as eligible hedged items, and if so, how to deal with the ineffectiveness that results from the hedging relationship.

The Board was quite divided on the issue. Certain Board members were vehemently opposed to allowing hedge accounting for these investments as they believed it could encourage further use of this designation category under IFRS 9. The Board's intention with creating this category was only for strategic investments, but because of difficulty in defining the term strategic appropriately left it available to items not held for trading.

Some of these Board members suggested that IFRS 9 be reopened in order to properly narrow the scope of the FVTOCI designation. Others felt that the FVTOCI category was an exception and now they were being asked to create another exception to resolve issues around the initial exception. One IASB member mentioned he would be open to consideration of allowing investments at FVTOCI as hedged items if the dividends on those investments were also recognised in OCI rather than in profit or loss. The IASB Chair mentioned he would be open to permitting a one-time election at initial recognition of the hedge accounting provisions to move items previously designated at FVTOCI to fair value through profit or loss in order to achieve hedge accounting.

However, other Board members empathised with the concerns raised by constituents and felt the accounting should portray the risk management activities. Ultimately, the Board tentatively decided in a narrow vote (8-7) to permit equity investments designated at FVTOCI as eligible hedged items. The Board also agreed that any ineffectiveness resulting from the hedging relationship to be recognised in OCI.

Based on the vote of the Board, one IASB member requested that IFRS 9 be reconsidered in an attempt to narrow the definition of investments eligible for designation at FVTOCI.

Once the decision to permit investments designated at FVTOCI as eligible hedged items was made, the Board then had to consider whether to limit the scope expansion just to this item or whether to expand the scope of hedge accountings to all risk exposure that impact profit or loss or other comprehensive income. The other primary component of OCI where entities will utilise economic hedging relates to defined benefit obligations. The Board had hesitations over expanding the scope of hedge accounting to all items impacting comprehensive income and tentatively decided to limit eligible hedged items to only those equity investments designated at FVTOCI.

The staff provided the Board with an update from the March 2011 IFRS Interpretations Committee meeting.

The staff provided the Board with an update from the March 2011 IFRS Interpretations Committee (the "Committee") meeting.

One IASB member enquired of the staff what the status of the work of the National Standard Setters was with respect to the efforts regarding IFRS 2. The staff responded that the results of their work had been presented to the Advisory Council and that their efforts along with the Committee's efforts on IFRS 2 could be combined into a future project on the Board's agenda.

The incoming IASB vice-Chair asked the staff what the status was on the Committee's efforts to find replacement Committee members. The staff responded that the search period had closed and all CVs had been submitted to the Trustees for further consideration.

The IASB and FASB (1) discussed the designation of portions of items that are larger than the cash flows of the hedged item (commonly referred to as the 'sub-LIBOR issue') (2) considered certain issues raised by respondents related to cash instruments as hedging instruments (3) held an education session on the forthcoming macro hedge accounting project.

Sub-LIBOR issue

The hedge accounting exposure draft carried forward the existing hedge accounting guidance from IAS 39 related to designation of portions of items that are larger than the cash flows of the hedged item (commonly referred to as the 'sub-LIBOR issue'). While the issue is not limited only to hedging of interest rate risk, this is where the issue primarily arises; specifically because certain instruments are priced sub-LIBOR and therefore have cash flows less than the benchmark interest rate.

During the comment letter process and Board's outreach activities, the staff recognised there was some level of confusion around the guidance included in the exposure draft. Some respondents requested that the Board differentiate between sub-LIBOR instruments with a floor at zero per cent and instruments without a floor as the original agenda paper prepared by the staff noted the issue only arises when the interest-bearing instrument has a floor. Additionally, respondents requested the Board reconsider the restriction with respect to 1) hedging a net exposure where the aim is to lock in a fixed interest margin, 2) hedging a non-financial item priced below the benchmark, and 3) hedging of core deposits and macro hedge accounting.

For the discussions today, the staff asked the Board to focus solely on the issue of using a hedging instrument based on a benchmark risk to hedge an item with total cash flows less than those associated with that benchmark, and the purpose is to hedge a fixed margin between an interest-bearing financial asset and an interest-bearing financial liability.

The staff proposed retaining the restriction from the exposure draft for portions of items larger than the cash flows of the hedged item when an interest rate floor is in place. Their belief that doing so avoids counter-intuitive results such as paying interest on an asset and deferral of hedge ineffectiveness while illustrating that a fixed' margin does in fact become variable when LIBOR drops below a critical range (i.e., the range of the negative spread to LIBOR).

The discussion began with one Board member asking a question that since the guidance from IAS 39 was carried in to the exposure draft, whether it was possible to get hedge accounting today for these issues. The staff responded that hedge accounting was possible, but because of the 80-125% effectiveness threshold, entities may have experienced issues with failing hedge accounting, particularly in today's current low interest rate environment. One Board member suggested that taking a second look at the wording in the exposure draft may help to resolve a lot of the questions around the issue. The Board tentatively decided to retain the restriction in the exposure draft when an interest rate floor is in place but to consider ways to further clarify the guidance.

Cash instruments as eligible hedging instruments

The hedge accounting exposure draft proposed that financial instruments carried at fair value through profit or loss be eligible hedging instruments. Comment letter respondents raised certain issues related to this part of the proposals.

Eligibility of Cash Instruments Not Measured at Fair Value through Profit or Loss

Some of the respondents requested that cash instruments not designated at fair value through profit or loss (i.e., amortised cost) also be eligible hedging instruments as they asserted conceptually there was no basis for differentiation.

The Board had little interest in expanding the proposal beyond its original scope and tentatively decided to limit cash instruments as eligible hedging instrument to those cash instruments measured at fair value through profit or loss.

However, the discussion turned to a broader discussion of the proposals around eligibility of cash instruments. One of the Board members raised the concern over the possibility of creation of synthetic' available-for-sale classification where one equity instrument is used to hedge the purchase of another equity instrument in a cash flow hedge. He believed that the use of cash instruments should be limited only to fair value hedges because of this reason. The IASB Chair requested the staff develop an example for future consideration by the Board.

Eligibility of Cash Instruments Designated under the Fair Value Option

Some of the respondents thought the Board was not restrictive enough in their proposals related to the eligibility of cash instruments as hedging instruments. In particular, it was noted that assets carried at fair value through profit or loss from election of the fair value option' would have been done so to eliminate an accounting mismatch. Therefore, application of hedge accounting would undermine the rational for initial election of the fair value option. Additionally, it was noted that for liabilities designated under the fair value option, the credit component is recognised in profit or loss while other changes in fair value are recognised in OCI.

In considering these comments, the staff felt that a blanket prohibition of items designated under the fair value option may be overly restrictive. This is because items may have been initially designated to reduce an accounting mismatch, however because of the irrevocable nature of the fair value option the accounting mismatch may no longer exist and the entity may now wish to designate the item as a hedging instrument in a hedge relationship. However, the staff recognised the need to clarify the issue around financial liabilities designated under the fair value option and their mixed recognition approach (between profit or loss and OCI).

The Board tentatively agreed not to restrict financial instruments designated under the fair value option as eligible hedging instruments but to clarify that financial liabilities designated under the fair value option where part of the change in fair value is recognised in OCI should not be eligible.

Macro hedge accounting

The Board held an education session on the forthcoming macro hedge accounting project. No decisions were made during this session.

Based on the research performed to date, the initial observations communicated to the Board included that the risk profile of a portfolio is different from the risk profile of the various individual items. This is due in part to the law of large numbers', from a statistical standpoint, the greater the number of items will reduce the actual deviation between actual and expected cash flows. Another key observation was that various approaches may be utilised in managing the risk associated with the portfolio. In the example of managing a portfolio of prepayable interest rate assets, potential risk management alternatives include using interest rate options, hedging the portfolio on the basis of tranches (layers based on probability of prepayment), and using dynamic strategies with open portfolios (considering future events and interdependencies between scenarios). One other observation is that hedging strategies for portfolios may focus on cash flows, fair value, income or some combination of some or all of those. Therefore, the existing cash flow and fair value hedge accounting models may not perfectly fit a macro hedge accounting model.

One of the IASB members noted the example used in the agenda paper focused on a bank's portfolio of interest rate assets. He mentioned that during outreach on hedge accounting, several energy companies had enquired on the macro hedge accounting project and wanted to understand what the scope of the project would include. The staff clarified that the same challenges banks may face in applying hedge accounting to their portfolios, energy, utility and other companies may face in dealing with portfolios of commodities. As such, this project is not intended to address any specific industry or risk but a broad coverage of the use of portfolios to manage risk.

Another IASB member asked a question on the comment made about portfolios may manage risks somewhere between managing fair values and managing cash flows, specifically would the current hedge accounting models not work for portfolios. The staff responded that it may work, but there may need to be adjustments in order to fit portfolio hedging strategies.

Another IASB member encouraged the staff to hold education sessions with financial and non-financial risk managers to provide the Board with insights on the techniques utilised by companies for portfolio level hedging strategies.

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